Axactor ASA

Good morning and welcome to OxActor's second quarter presentation. Together with me, I have our CFO, Nina Mortensen, which will present the financials. The presentation will be divided into four parts. First, I will take you through the Q2 highlights, then Nina will go through the financial update before I present an updated outlook. As always, we will round off with a Q&A session. Let us move to slide three and have a look at the highlights for the second quarter. Gross revenue declined marginally year-over-year by 2%, and the main reasons for the negative development are still the macroeconomic environment, the debt relief initiatives from the governments, and the relatively moderate investment levels we had in 2023. However, cash EBITDA was up 3% year-over-year, reaching 61 million euros, which is one of the highest, if not even the highest, level in a single quarter for Exato. strict cost control in all markets offsets declining gross revenue and inflation ebda ended at 30 million euros down from 33 million last year but still at a very strong 51 to my knowledge 51 is one of the highest levels in the industry the annualized return on equity was four percent but like i said last quarter the truth is that exactor as most competitors is burdened with higher for longer interest rates and a challenging collection environment, putting pressure on profitability. Moving on to slide four, we will see that investment levels are going up at attractive prices in Q2. Last year, Akzaktur invested 116 million, still above our replacement capex for 2023, but not contributing to meaningful growth. The low investment pace continued into first quarter, but in Q2, we successfully executed a planned shift in the investment level. In addition to the high amount in absolute terms, we consider the transactions to be done at attractive prices, which resulted in an improved total gross IRR on our back book. We have been able to improve our total gross back book IRR with three percentage points during the last three years, going from 15.7% in Q1 2021 up to 18.7% at the end of Q2 this year. we aim to gradually ramp up our investment levels and still expect to invest between 100 and 200 million euros for the year let's move to the next slide for more details on the development in operating expenses our sector is facing increased cost pressure as everyone else in the industry salaries are going up it licenses are going up office rent is adjusted by the inflation etc etc we have the ambition to keep the operating expenses at the same level in absolute terms year over year This means that we need to initiate substantial cost measures to compensate for the unavoidable cost increases. I'm therefore very pleased to see that our operating expenses are down 3 million euros or 11% year over year. The OPEX of 32% is the lowest level we have had in a single quarter and low OPEX is the key driver for the high cash EBITDA. But as we expect the cost pressure to continue, we constantly need to improve. Please move to the next slide for a couple of examples of new initiatives that will help us to reach our ambition on the costs also going forward. The first project I would like to mention is the site consolidation we are doing in Italy. The initiative is called Growth Italy and aims primarily to make us more equipped to handle the expected growth in the Italian debt collection market. For instance, we are planning to build up legal collection in Milan, where there is better access to necessary legal competence, and we are strengthening the amicable collection capacity in Sicily. Further, we are relocating the headquarters to Grosseto, and this will allow for realizing synergies from the CR service acquisition. Over time, we expect to be able to deliver top-line growth without increasing the cost base correspondingly. Another initiative is to change the IT infrastructure provider. After a comprehensive procurement process, Advania was chosen as a new partner. The new contract will reduce IT costs over time. The last point I will make before I leave the word to Nina is regarding interest rates. Please move to the next slide for more info and comments. This is not an area that we can really impact that much, except working with the capital structure in different ways to reduce the margins on our borrowing facilities. But I would still like to mention it as a potential decline in interest rates will really move the needle in terms of profitability if the interest rate forward curves materializes over the next couple of years. currently 95 of our interest bearing debt is unhedged but over time as we do new investments the share of hedging will gradually go up with approximately 950 million euros in net interest bearing debt and 95 being unhedged it is clear that a just one percentage point reduction in the interest rates will improve our sector's cash flow and net financial results rather substantially and hence also the return on equity That is the good news. Unfortunately, this will take time and the effects in 2024 will be limited. Nina, with that, I leave the word to you.

Thank you, Johnny. Before I start going through the Q2 numbers, I just want to highlight that as of 2024, AXAFTOR no longer has any discontinued operations. all prior figures presented are for continuing operations unless otherwise stated gross revenue for the group and the two percent below q2 2023 the decline in revenue was mainly a result of the challenging macro situation government imposed debt relief initiatives and the moderate investment level in 2023 the mpl segment reports a negative growth of three percent this quarter The decline was driven by the same reasons as just mentioned for the decline in revenues at group level. On the more positive side, the CPC segment delivered a growth of 2% in Q2. Excluding the CPC businesses in Sweden and Finland that was closed during the fourth quarter of 2023, the growth was 8%. Let's look a bit more in the details on each of the business segments starting with Enpel on the next slide. Total income for the NPL segment ended at 46 million euros in Q2, down from 52 million euros in the second quarter of 2023, a decline of 12%. We continue to see a challenging collection environment during the quarter, especially in Norway and Germany. The overall collection performance ended at 93% for the quarter. Total income was negatively impacted by revaluations of 4.6 million euros in the second quarter, combined with a slightly higher NPL amortization rate of 34%. We are pleased to see positive results this quarter from the ongoing cost improvement projects with an increase in the contribution margin of two percentage points from 76% up to 78%. Please turn to the next slide for comments on the development in the CCC segment. The CPC revenues ended at 13 million euros for a quarter, equal to a growth of 8% if we exclude Sweden and Finland, which was closed down last year. The uplift this quarter is driven by double-digit growth in both Spain and Norway. The contribution margin was 36% in the second quarter, up from 33% in the second quarter last year. The increase in margin was a result of healthy cost control and the exit of low margin business in Sweden and Finland. We expect continued improvement in this business segment in the second half of this year, supported by new contracts. The Norwegian CPC business is experiencing solid growth from new sales within the banking and finance segment. Focusing on this segment remains a strategic priority for X-Active. Let us move on to the next slide where I will present more details on the reported financials. Total income at group level ended at 59 million euros in Q2, down from 65 million euros in Q2 2023. The EBITDA margin rose to a healthy level of 51% due to strict cost control in all countries. Cash EBITDA ended at 61 million euros for a quarter, a growth of 3% from Q2 2023. Moving on from reported cash EBITDA to summarize the financials for the quarter on the next slide. We achieved in Q2 an ROE level of 4% on a 12-month rolling basis. This ROE performance was impacted by external headwinds related to the macro environment and increased cost of funding. We are pleased to see benefits from our cost improvement project, supporting a healthy underlying cash EBITDA and margin. We are also pleased to see that our CCC strategy is working and to see a return to growth this quarter. I now hand it back to Johnny for some comments on the outlook.

Thank you so much, Nina. Regarding outlook, a lot has already been discussed during the presentation, but to summarize, we expect to experience a challenging collection environment during the whole of 2024. further we have very good cost control and expect to be able to absorb any cost inflation through opex reductions as mentioned earlier we expect only a modest reduction in cost of funding due to a potential interest rate decline in 2024 and we keep our investment target of 100 to 200 million euros for the year Finally, as of end Q2, we are compliant with all covenants, but given the limited headroom on leverage ratio and interest coverage ratio, we will pay close attention to these going forward. We are continuously working on mitigating actions. With that, we open up for Q&As.